Any investment approach utilized by a potential investor should take into account their investment goals and tolerance for risk. Before a person decides on a strategy to employ for investing they should look at the length of time they plan on investing and then select an investment strategy that can accomplish that objective in an efficient manner. Whatever investment strategy you choose, be it a long or short term strategy always ensure that you investment portfolio is well allocated and diversified.

 

There are several investment strategies that can be utilized to achieve investment goals, but most of the strategies will depend on your personal goals, risk tolerance and level of investment knowledge.

 

Common Investment Strategies:

 

Top - down Investing Strategy: This strategy is usually utilized by investment and fund managers. The strategy involves selecting investment assets using a “big picture” approach, by first looking at domestic and global economic conditions and then selecting assets within industrial sectors that are projected to outperform the market.

 

Bottom-Up Investing:  This strategy involves selecting investment assets based on the strength of individual companies other than first looking at a broad sector or industry.

The Top-down and Bottom- up investment strategies usually end up being combined by investors when analyzing investments. It is always prudent to combine both strategies because they both have their individual pros and cons.

 

Dollar Cost Averaging: This strategy is utilized in all 401K’s and some IRA’s. It involves purchasing a fixed dollar amount of a particular investment at regular intervals over a length of time. The strategy reduces the risk of investing a large amount in a single investment at the wrong time.

 

Benefits of Dollar Cost Averaging: This strategy prevents you from timing the market because you are constantly purchasing securities regardless of whether the market is up or down. It reduces your average cost over time because you are purchasing the same investments at different prices over a course of time. It also serves as a way for you to save and invest at the same time over an extended period of time.

 

Fundamental Analysis: This strategy involves evaluating all factors that affect an investment’s performance and future prospects. This strategy is very time consuming because it requires you to perform a thorough analysis of a company’s fundamentals relative to its broader industry and economy. The strategy is utilized when investing in stocks, and usually involves digging into a company’s financial statements and business fundamentals.

 

Benefits: Thorough analysis of an investment to understand the causing factors that drives a stock’s value and price.

 

Technical Analysis: This strategy involves forecasting price movements of securities by using market data such as past security prices and volume. This strategy is usually employed by traders

 

Benefits: this strategy can be executed quickly by looking at price patterns and charts of price movements

 

Contrarian investing involves researching and selecting assets that you believe have the potential to go up in value in the future but are currently are out of favor with the market due to widespread market pessimism. This strategy is similar to a value investing strategy which also seeks to find stocks with value that are currently out of favor with the market.

 

Benefits: this strategy reduces the risk of not investing in an overvalued market because you are usually betting contrary to popular market views and sentiment. It also gives you the opportunity to buy investments at bargain prices if your views about an investment turn out to be right. This is because you buy stocks at prices that have been beat down due to wide spread pessimism about the company’s prospects.

 

Dividend Investing involves buying stocks with strong records of earnings and dividends.

 

Benefits: Stable and consistent revenue stream from dividend payments as long as the company continues paying dividends.